Employment and planning laws should be overhauled in favour of companies to kickstart the economy, business leaders told the Government today.

The Institute of Directors (IoD) is concerned that the Government is not doing enough, quickly enough, to improve the supply-side of the economy and has produced a paper containing 24 suggestions it believes would help the economy grow at little or no cost to the taxpayer.

The Government was recently criticised by Sir Richard Lambert, the outgoing boss of business body the CBI, for making cutbacks but not setting out its vision to promote growth, as the economy contracted by 0.5% in the final quarter of 2010.

The IoD's suggestions, some of which are likely to prove controversial, include overhauling some of the employment laws to make them more friendly towards businesses and revolutionising the planning system to open up the greenbelt to developers.

Miles Templeman, director-general of the IoD, said: "The Government's deficit reduction strategy is central to improving growth prospects and the overall business environment, but the Government also needs to reform the supply-side of the economy to boost the private sector.

"Many of the measures we have proposed today are long overdue and would improve the UK's infrastructure and the functioning of its labour market. We urge ministers to seize this opportunity."

The paper suggests the Government should drop plans to abolish the default retirement age, asking "Why does the Government want to make it harder to remove staff who are no longer effective?".

Collective pay bargaining in the NHS and education sector should also be ended to boost productivity.

It calls for the abolition of the right to request flexible working and the right to request time off for training, which it claims creates red tape for firms.

Employers should be protected from vexatious industrial tribunals by making employees put a £500 deposit down before they bring a case, it added.

In planning, a fast-track system for key national infrastructure projects should be created that could override local objections.

Regional growth funds should be targeted at winners rather than losers, as money is pumped into areas that are likely to show the biggest return on investment, it said.

The paper also suggests that the ratio of public spending to GDP should be reduced to 35% by 2020. Currently, the Government plans to get spending down to 40% by 2016.

A spokesman for the Treasury said: "We are glad the IoD have agreed that our deficit reduction strategy is central to growth.

"We have been clear that the Budget will build on work we have done already as we move towards a new model of economic growth.

"This points to a rebalancing of the economy - that is vital if we are to achieve sustainable economic growth."

Decentralisation minister Greg Clark said: "The Localism Bill is unashamedly pro-growth. It will reboot the planning system so it is no longer one of the major obstacles to growth. We have got into a disastrous situation where communities have become pitted against development by being shut out of the process and seeing only the costs, never the benefits.

"By allowing communities to share directly in the rewards of growth and giving them the chance to shape a positive future for their areas, the Bill will create the conditions where people begin to welcome rather than resist growth."

TUC general secretary Brendan Barber said the IoD plans would not help generate growth.

"Our economy is not struggling because of the relatively modest platform of rights people have at work," he told the BBC Radio 4 Today programme.

"Taking these away and taking away collective bargaining from the NHS, that would do nothing to generate growth.

"We need decent fair pay systems, and collective bargaining is the way to deliver that."